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Saturday, December 13, 2008

Avoiding a Project's Most Threatening Risks

Have you ever deviated from your regular driving route because excessive traffic or road construction may have put you at risk of being late for an important appointment?

In everyday life, people often modify their personal plans or schedules in order to avoid the unwanted consequences of potential risks. In the same way, project managers are often forced to change or modify their project plans in order to eliminate threatening project risks.

As a project manager, you will encounter various risks throughout your project's development. Although you can never prevent every project risk, you should make every attempt to eliminate as many as possible.

One risk response strategy that you can use to help you achieve a successful project completion is avoidance. Avoidance involves changing your project plan to eliminate an identified risk or the condition that causes the risk. This risk response strategy also involves protecting your project objectives from the impact of identified risks.

As a project manager, you can often respond to some risks that arise early in the life cycle of a project by clarifying requirements, obtaining information, improving communication or acquiring expertise. However, there are other types of project risks that you will need to avoid in order to promote a successful project completion. These types of risks include those that have a high probability of negatively impacting project objectives and those that have the ability to cause complete project failure.

Avoidance is one strategy that you can use to help you deal with these types of risks. Such things as reducing scope to avoid high-risk activities, adding resources or time, adopting a familiar approach instead of an innovative one or avoiding an unfamiliar contractor are all ways in which you can eliminate threatening project risks.

The first type of risk that you should avoid during the life cycle of your projects is unacceptable risks. These types of risks have a high probability of occurrence and an extreme or very high level of potential impact.

You should also avoid uncontrollable risks. These risks cannot be absorbed by the project's available resources or existing contingency reserves. They are also risks that do not have mitigation or transference strategies available.

The last type of risk that you should avoid throughout your project's development is potentially harmful risks. These risks are especially threatening to project success because they have the potential to harm a project's personnel.

As a project manager, there are three key questions that you can ask in order to determine if an identified project risk should be avoided. If you can answer "yes" to even one of these questions, the risk that you are examining should be flagged for avoidance. The three questions include:

Is the level of risk unacceptable?

Are the means for controlling the risk unfeasible?

Is there a potential for harm?

As a project manager, how do you determine whether the level of an identified risk is unacceptable to your project and its outcomes? One of the best ways to answer this question is to examine the prioritized list of quantified risks that resulted from your project's quantitative risk analysis process.

This list indicates which risks pose the greatest threat or present the greatest opportunity to your project objectives and overall outcomes. This prioritized list of quantified risks also includes a measure of potential risk impact.

You should examine your project's prioritized list of quantified risks and set aside those risks that have an extreme or very high level of potential impact. Once this is done, you should make every effort to modify your current project plan in order to avoid these types of risks. Typically, project managers classify risks with an extreme or very high level of potential impact as unacceptable because of the possible danger they pose to the success of overall project outcomes.

Another element to consider when trying to determine whether the level of an identified project risk is unacceptable is the risk thresholds for the project. Risk thresholds, which are established in a project's risk management plan, indicate the level of risk that is acceptable to individual project stakeholders. If you have identified a project risk that has the potential to greatly exceed one or more of the established risk thresholds for your project, this is a risk to avoid because it threatens the successful completion of your project.

Another question to consider when trying to determine if an identified project risk should be avoided is: are the means for controlling the risk unfeasible? All projects are subject to such things as cost and time constraints. As a result, some project risks may be too expensive to control.

In addition, most projects are allotted a limited amount of contingency reserves. These reserves are the amount of money or time needed to reduce the impact of cost and schedule overruns on critical project objectives and outcomes.

If you find that the means for controlling one of your identified risks is not feasible and cannot be absorbed by your project's available contingency reserves, this is a risk that you should avoid. A careful examination of such things as your project budget, schedule, and personnel and material resources will help you decide whether your project has the means to reduce or eliminate the risk's potential impact or whether it would be more beneficial to avoid the risk altogether.

The third and final question that project managers can ask in order to determine whether an identified project risk should be avoided is: Is there a potential for harm? In most cases, a risk is considered harmful if it involves the presence of dangerous materials or conditions at the project site.

Project managers must be able to identify any risks that have the potential to harm their project team members or stakeholders. These risks may include such things as faulty machinery or unsafe working conditions.

More examples of harmful project risks are listed below. As a project manager, you should immediately flag these types of risks for avoidance. These risks include:

tasks that involve handling, storage or disposal of hazardous materials

major construction work in locations vulnerable to seismic activity

other potentially damaging natural events.

It is important to remember that unforeseen risks will continue to arise as a project progresses. As a project manager, it is your responsibility to analyze these unexpected risks, as well as all identified project risks, in order to determine if they should be avoided. Once this decision is made, you can then modify your project plan to avoid the selected risks. This will help you ensure that your project remains on a progressive track and heads toward a successful completion.

Avoidance is sometimes the best response. As a project manager, you can use avoidance to eliminate some of your project's most threatening risks and their potential impact. This risk response strategy is a key contributor to overall project success.